If you have a poor credit score, you’re not alone. Most people have credit card stories about late payments, overspending or unauthorized charges. However, it’s time to rebuild your credit to steer clear of the problems it could cause in the long-run.
A poor credit score can keep you from your life goals because it often is the reason why loans are not approved, whether it’s a home loan or an education loan for higher studies. Like most other things, a poor credit score can be rectified. Here’s how:
Review your credit report and assess the situation
Start by requesting for your credit report and credit score. The primary goal of reviewing your credit report is to understand where you went wrong and what caused your credit score to drop.
Was the reason inefficient financial behaviour such as regular late and missed payments or was it one big financial hit? Once you’ve understood the reason, you can steer clear of the same mistakes. If you’re spending more than you earn and are using your credit card as a way to bridge over the difference, you need to work on cutting back on your expenses.
Do not close your accounts
One common mistake people make while trying to rebuild their credit is closing their existing credit card accounts. The age of your accounts can actually help your credit score. In case you have revolving balances, stop using those cards until you pay off your existing debt completely.
Even during financially tough times, try your best to pay at least the minimum and pay it on time. Even the credit cards you use infrequently, keep the accounts open with small charges once every few months. Pay such charges immediately and in full to boost your credit score.
While taking such efforts to salvage your current credit, do not apply for credit cards. Also steer clear of cash advances, which usually convey financial distress to financial organizations.
Grow your score
Paying your credit card bills on time is key to building as well as rebuilding your credit, as this factor carries the most weight in your credit score.
Another thing to focus on while growing your score is the credit utilisation ratio which is the percentage of money you’ve utilised in relation to your credit limit. The lower this ratio, the better is your credit score. Most recommend to keep this ratio between 20-30%.
Apply for new credit
Once you’ve got a handle over your credit and your credit score has improved, you can eventually apply for a new credit card. Using your new credit card responsibly can help you further boost your credit score by demonstrating your financial turnaround.
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